Technicals and interest rate hopes drive risk appetite on equity markets

At a glance

Economics

• US economy: soft landing in winter after robust economy in summer; new momentum in the course of 2024.
• Europe: consumer purchasing power recovers, but industry and residential construction decline. Economy weak for now.
• Inflation declines, rate peak probably reached. Fed cuts rates from spring 2024, ECB keeps money market rate stable in 2024

Equities

• Equity markets recovered after weakness of recent weeks at start of November. Rally mainly driven by technical factors.
• Cyclical risks currently only partially priced in. Late effects of tight interest rate policy continue to make markets vulnerable.
• We have reduced our equity underweight. A continuation of the rally seems possible for the time being.

Bonds

• Decline in yields on safe government bonds in view of central bank interest rate pauses and cooling economy.
• Increased interest rate volatility on both sides of the Atlantic continues to argue for duration close to neutral.
• IG inflows remain positive for the year, HY – almost unchanged. EM local currency bonds still preferred.
  

Commodities

• Geopolitics and falling real interest rates boost gold. Only a turnaround by the central banks offers further potential.
• Demand worries have recently outweighed supply risks. After a strong rally, crude oil only has potential again in the medium term.
• Industrial metals remain sensitive to the economy, but the decarbonisation trend is already supporting the price trend.

Currencies

• US dollar remains strong, partly due to the geopolitical crises. A small setback recently because interest rates have probably peaked.
• The Bank of England keeps base rate constant despite high inflation. The pound weakens slightly – EUR/GBP rises to 0.87.
• Even though the euro has recently gained slightly against the franc: The Swiss currency is strong due to the many crises.